GPCA ’12: Project financing a key challenge for GCC petchem sector

29 November 2012 10:02[Source: ICIS news]

DUBAI (ICIS)--Project financing will remain constrained for some years in the Gulf Cooperation Council (GCC) countries that rely more on banks instead of capital markets to raise funds, a senior banking executive said on Thursday.

There has been a general recovery in the capital markets since the financial crisis of 2008, but it had an impact on financing for projects and also on the demand side as well, Ashok T Aram, CEO for the Middle East and North Africa region at Deutsche Bank told the delegates of seventh annual Gulf Petrochemicals and Chemicals Association (GPCA) forum in Dubai.

While the petrochemical industry in the GCC is largely optimistic about new growth prospects, it needs to be aware of the challenges in raising finance, according to Aram.

In the US, 70% of the projects rely on capital markets for their financial needs whereas in the GCC they rely on just 10-15% on debt markets and more on the banking sector.

Typically, project financing had been done more by European banks in the GCC, but after the eurozone crisis and new regulatory requirements for capital, many of them will not be able to offer funds, Aram said.

“Long term project lending will remain constrained for some time,” he added.

For continued growth the petrochemical industry in the GCC will have to turn more towards global and regional capital markets, Aram said, adding that to support demand, the role of export credit agencies will be ever more crucial.